What is Mezzanine Financing

If youÕre raising growth capital to expand your business, financing an acquisition or financing a dividend payment, you should consider using mezzanine financing as part of your capital solution. So what is mezzanine financing you may ask?

Mezzanine financing, which is a form of debt financing, is a great source of growth capital for specific growth initiatives like plant expansions or launching new product lines, as well as financing other major strategic initiatives like buying out a business partner, making an acquisition, or completing a financial restructuring to reduce debt payments.

Mezzanine debt is often used in combination with bank financing and equity financing, or it can be used as a substitute for bank debt and equity financing.

Mezzanine capital is subordinated debt, which means itÕs junior capital, in terms of payment priority, to senior debt, but itÕs senior to the equity or common stock of the company, so in a capital structure, it sits below the bank debt, but above the equity.

Mezzanine financing has five very attractive features:

1. Mezzanine lenders lend based on cash flow, not collateral, so they will lend where banks wonÕt if a company lacks collateral, but has enough cash flow available to service debt.

2. What is Mezzanine financing is a less expensive capital option than raising equity from individual equity investors or private equity firms Ð meaning owners give up less, if any, additional equity to fund their growth.

3. There are no immediate principal payments Ð mezzanine financing is usually interest only for the first 3 years or more so you can take the cash that would have gone to make principal payments and put it back into the business.

4. It typically has a maturity of five years or more, so itÕs long term financing and wonÕt need to be paid back in the short term Ð itÕs not usually used as a bridge loan.

5. Mezzanine debt does not require a change in ownership Ð existing owners and shareholders remain in control, a key difference between raising mezzanine financing and raising equity from a private equity firm.

Mezzanine financing is also a great funding option for financing a leveraged buyout (LBO financing), financing a management buyout (MBO financing), or completing a dividend recapitalization.

Since most mezzanine lenders tendency is to lend against the cash flow of a business, not the collateral, mezzanine financing is a great solution for financing service business, like logistics companies, staffing firms and software companies, although it can also be a great solution for financing manufacturers or distributors, which tend to have a lot of assets.

To learn more about how to use mezzanine financing, or for more information about middle market investment banking and capital raising services, please visit us at www.accesscappartners.com.